Reference no: EM13379679

Jane Collier, James Taye, and Steve Allwine each own one-third of the common stock of Tasty Treats and Beverages. The corporation was incorporated on April 3, 2004. It has only one class of stock outstanding and operates as a C corporation for tax purposes. Tasty Treats and Beverages caters kid-friendly social events.

• Located at 1215 Blue Horizon, Dallas, TX 12234.
• Employer Identification Number is 12-34567890.
• Business activity is catering food. Its business activity code is 722300.
• The shareholders also work as officers for the corporation as follows:
• Jane is the chief executive officer and president (Social Security number 242-62-5786).
• James is the executive vice president and chief operating officer (Social Security number 563-58-8923).
• Steve is the vice president of finance (Social Security number 575-58-1572).
• All officers devote 100% of their time to the business
• All officers are U.S. citizens.
• Use the accrual method of accounting and have a calendar year-end.
• Four equal estimated tax payments of $28,000 each quarter. Its tax liability last year was $85,000.
• If it has overpaid its federal tax liability, the corporation would like to receive a refund.
• Dividend paid of $20,000 to its shareholders on October 1. The Corporation had ample earnings and profits

(E&P) to absorb the distribution.

Financial Statements

Tasty Treats and Beverages, Inc.
Income Statement
For year ended December 31, 2013
Revenue from sales		1,500,000
Sales returns and allowances		(25,000)
Cost of goods sold		(325,000)
Gross profit from operations		1,150,000
Other Income:
Capital loss		(7,500)
Dividend income		15,000
Interest income		12,000
Gross income		1,169,500
Expenses:
Compensation		(750,000)
Depreciation		(12,000)
Bad debt expense		(7,800)
Meals and entertainment		(3,000)
Maintenance		(2,500)
Property taxes		(10,000)
State income taxes		(30,000)
Other taxes		(11,000)
Rent		(28,000)
Interest		(7,300)
Advertising		(6,200)
Professional services		(5,000)
Employee benefits		(8,000)
Supplies		(2,500)
Other expenses		(1,750)
Total expenses		(885,050)
Income before taxes		284,450
Federal income tax expense		96,713
Net income after taxes		187,737

		Tasty Treats and Beverages, Inc.
		Balance Sheet
		December 31, 2013
	ASSETS	Jan-13	Dec-13
	Cash	175,000	190,000
	Accounts Receivable	63,000	54,000
	Allowance for doubtful accounts	(8,000)	(7,000)
	Inventory	225,000	275,000
	US government bonds	30,000	25,000
	State and local bonds	50,000	50,000
	Investments in stock	325,000	335,000
	Fixed assets	475,000	485,000
	Accumulated depreciation	(198,000)	(215,000)
	Other assets	11,000	12,000
	Total assets	1,148,000	1,204,000
	(Liabilities and Stockholder's Equity)
	Accounts payable	225,000	200,000
	Other current liabilities	135,000	55,000
	Other liabilities	75,000	68,263
	Capital stock	250,000	250,000
	Retained earnings	463,000	630,737
	Total liabilities and stockholder's equity	1,148,000	1,204,000

Additional Information

• Inventory-related purchases during 2013 were $175,000. It values its inventory based on cost using the FIFO inventory cost flow method. Assume the rules of §263A do not apply.
• Of the $12,000 interest income, $1,500 was from a City of Dees bond that was used to fund public activities (issued in 2011), $1,750 was from an Border city bond used to fund private activities (issued in 2004), $2,500 was from a U.S. Treasury bond, and the remaining $6,250 was from a money market account.
• Dividend income came from ABC Inc. Owned 10,000 shares of the stock in ABC Inc. at the beginning of the year. This represented 10 percent of outstanding stock.
• On September 1, 2013, the corporation sold 1,000 shares of its ABC stock for $15,000. It had originality purchased these shares on June 13, 2006, for $7,500. After the sale, the Corporation owned 9 percent of ABC.
• compensation is as follows:

* Jane $175,000

* James $150,000

* Steve $150,000

* Other $275,000

• The Corporation wrote off $10,000 in accounts receivable as uncollectible during the year.
• Regular tax depreciation was $28,000. None of the depreciation should be claimed on Form 1125A.
• The $7,300 interest expense was from a business loan.
• Other expenses include $3,000 for premiums paid on term life insurance policies for which Tasty Treats and

Beverages, Inc. is the beneficiary. The policies cover the lives of Jane, James, and Steve.